The views contained here may not represent the views of 24hGold, its affiliates or advertisers.

24hGold.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including, editorials, news, prices, statistics, analyses) provided through its service. In no event shall 24hgold.com, its affiliates or advertisers be liable to any person for any decision made or action taken in reliance upon the information provided herein.

Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of 24hGold.com, is strictly prohibited.

I thought I had a good idea what
disasters we might face in 2013, and then I saw the most recent US Commodity
Futures Trading Commission’s Bank Participation Report for gold and
silver. On the basis of recent BPRs these markets are heading for a crisis,
which is generally unexpected. I shall break the reader in gently by looking
at gold first.

The first chart below shows US
banks’ net short exposure to gold up to December 4. Between February
and August the US banks managed to reduce their net shorts from 104,717 to
57,689 contracts against a background of a declining gold price. This is logical, to be expected and sensible
position management. However, when the gold price turned up after the August
BPR, net shorts rapidly rose to new highs, and over the last month
unexpectedly increased again while the gold price actually declined. This is
a sign that the US banks, of which only five made returns for December, are
having difficulty keeping a lid on the market that emotionally at best is
neutral, but most probably somewhat oversold. This differs from an
over-bought market with potential profit-takers to shake out, as was the case
when gold traded at $1,900 per ounce and the same banks were able to bring the
gold price back under control.

The next chart is of Non-US
banks’ net shorts, which tells a very different story. From October
2011 these banks increased their short positions, with a sudden jump between
August and October, before sharply reducing their net positions to 44,707 contracts
this month. It appears that some of the shorts have ended up on the US
banks’ books, pushing their shorts to uncomfortable levels as shown in
the first chart.

The jump in these net shorts
between August and October was comprised of sharp rises in both longs and
shorts involving swap dealers and the other commercials. Longs more than
tripled from 9,199 to 34,881 and shorts rose even more from 49,772 to 113,445
on a rising gold price. The likely explanation is that buyers materialised through some of these non-US banks, who
hedged by buying futures contracts. A dealer or dealers at one or more other
non-US banks saw the price go against their shorts and tried to kill it by
massive intervention. Subsequently, when the US banks sold the market down
from the October rally these non-US banks took the opportunity to reduce
their shorts to more normal levels.

This information is particularly
revealing, given that the Commitment of Traders Report shows a substantial
reduction in the Commercials’ net position by 34,551 contracts for the
week to the same date as the BPR, giving an impression of a market being
brought back under control. The BPR suggests otherwise.

Silver

While there is a large stock of
gold that can theoretically become available at higher prices, the same
cannot be said for silver. We shall look at the position of the US banks
first. The first silver chart shows that even though silver is trading well
below its 2011 highs, US banks’ net shorts are substantially higher
than might be expected. The long figure is down to only 625 contracts, while
the shorts are 40,198, so these less-than-four-banks that reported last week
have a net short exposure of nearly 200,000,000 ounces, or twice the
estimated annual supply of silver available to investors after industrial
demand is allowed for.

The final chart shows the non-US
banks’ net shorts. Unlike their exposure to gold, these banks are in
the same deep trouble as the US banks, having made the mistake of turning a
broadly level book as recently as the August BPR into a record net short
position on the August-October price rise. This is a vicious bear squeeze on
them, which added to the US banks’ position amounts to a total short of
290,000,000 ounces. This figure compares with net shorts of only 120,000,000
ounces when the price was successfully taken down from its all-time highs
early last year.

Conclusion

The silver does not exist to
cover these short positions, and it will take very little further buying to
set off a crisis in this important market. In the case of gold, there have
always been central banks with physical bullion available to ease market
shortages, but so far as we are aware the strategic silver stockpiles of
previous decades are exhausted. There is therefore no price at which these
shorts can be closed.

Bank positions in both silver
and gold seem to have been adversely affected by “events unknown”
from the August BPR onwards. All attempts by the banking community to regain
control of these important markets appear to have failed.

Since the date of the latest BPR
(December 4), there have been three serious attempts to reduce these short
positions and each time the same $32.60 level has held firm. This suggests
that a buyer or buyers larger than the banks are prepared to take them on by
buying the dips. This price action supports anecdotal evidence that physical
bullion in important markets such as London is in short supply.

On this evidence, and assuming
the trend continues, there will shortly come a time where NYMEX will be
forced to declare force majeure in this market, which they can do under their
rule book. The consequences of this extreme action could well be destabilising not only for the price and demand for
silver but also disruptive for gold.

Therefore, we must add the
breakdown of precious metals markets to the list of systemic dangers we face
in the New Year.

FinanceAndEconomics.org is the website of Alasdair Macleod, who has a background as a stockbroker, banker and economist.
Alasdair is available for seminars, speeches and interviews. Please check on Services to get further detalils.

There is never a shortage of Gold as all of it that has ever been mined is still existence.It is all about whether that gold will be risked for the irredeemable and increasingly worthless currencies that it is priced at.

That is in effect saying that those big players and established money who hold gold are increasingly reluctant to accept the narrowing basis between the spot and futures price.

Force Majeure is just another way of saying..."GAME OVER,STUFF YOU JOE PUBLIC"

Well, this article is about as clear as mud. I thought I was following along until the force majeure comment. Is the author trying to say that the price of silver and gold will go down because there is not enough available silver and gold to supply the markets? I would have thought the scenario would have been just the opposite. If it became apparent to all that there was not enough physical silver and gold to supply the markets, then the markets would logically come to the realization that all the short positions could not possibly be covered, thus creating a short squeeze, with the price of silver and gold rising, not falling. Increasing the demand due to the inadequate supply. Economics 101, as far as I can remember.Also, the following comment about "the consequences of this extreme action could well be destabilising not only for the price and demand for silver..." How could the DEMAND for silver be destabilized? Will the demand dry up because of the NYMEX declaring force majeure? Will industrial users stop creating their products because of this? I seriously doubt that. If anything, they would be clambering for supply (to carry on their businesses), which would drive the prices up, once again. I understand that the author is an economist, which might make it difficult for him to write in plain English that could be understood by lay people such as myself, but really, is that necessary? Why write articles for the public that are obscure and un-readable? Stick to your text books if you want to write jargon.I think at best, the article will be ignored. At worst, the author has just given the crooks at the CME/NYMEX a good idea about how they could screw the individual investor once again, jut as they did a while ago by raising the margin requirements on silver futures 3 times in as many weeks, thus crushing the price down over 40% Force majeure can be used in times of war and natural catastrophes, not because some bankster gets caught with their pants down and an illegal short position that cannot be covered.

Goodness me, this so-called 'analyst' just does NOT get it! It is shocking the degree of ignorance of the true Gold markets amongst the stale and paid for "experts". One hardly knows where to begin to dismantle this piece, and give it some veracity and authenticity. Ok, let's start with the utterly absurd notion that there is, according to the author, a juicy big fat ready stock of gold available should the price rise. Unbelievably short-sighted and WRONG! There is NO supply of Gold Bullion available in any meaningful amount. Any that is available can only be purchased at many multiples of the current smoke-n-screen LBMA and Come price for paper gold, a price which -in truth- is merely a deposit price for Gold Bullion which will NEVER exist. It's a fraudulent price. And yes, there's a massive juicy stock of that imaginary gold available at any price.

But Gold Bullion hides when the price rises; it sits still, its owners' very reasons for holding it undergoing the starkest verification. It does NOT become available, it becomes even more UNAVAILABLE.

If you knew anything at all about the TRUE gold markets, you would know that Gold Bullion is and has been in hiding for many years. The BIS will get you access if you are a CB, and you'll pay the price of the true VALUE of Gold Bullion, many many times its paper gold price. There is an insider since 1978 who reveals the workings of the true markets, an insider for the past 40 years; see preciousmetalspete.blogspot.co.uk/ Get there fast, you need to learn!

There is never a shortage of Gold as all of it that has ever been mined is still existence. It is all about whether that gold will be risked for the irredeemable and increasingly worthless currencies that it is priced at. That is in effect saying that t Read more